No firms would immediately lose their listing under the proposed legislation, but investors worry it will further inflame tensions between Beijing and Washington at a particularly bad time. Shares in major Chinese companies listed in the U.S. dropped sharply in the days after the Senate passage. With the global economy reeling from the coronavirus, a worsening of the relationship could create more skepticism about the resumption of trade talks and send both U.S. and Chinese shares lower.

“Chinese companies have failed to meet U.S. standards that were agreed upon in writing when their companies were listed,” said Michael Farr, president of money-management firm Farr, Miller & Washington. “The problem is that compliance failures have gone unaddressed and bad behavior has increased.”

Unlike other countries, China has never given U.S. regulators routine access to audit records needed to review the quality of financial accounting, according to U.S. officials, who have sought a deal for years. That covers about 200 companies with a total market value exceeding $1.4 trillion, according to S&P Global Market Intelligence.

Investors have often been willing to overlook the regulatory gap as they snapped up shares of Chinese companies, including Alibaba Group Holding Ltd., that made their debuts on U.S. exchanges. Wall Street banks, which underwrote the stock sales and are supposed to conduct due diligence on the companies, have been rewarded with more than $1.4 billion in fees, according to data from Dealogic. The major stock exchanges also benefited from lucrative, attention-getting global listings.

The Senate legislation requires the Chinese companies with shares traded here to disclose to the Securities and Exchange Commission whether they are owned or controlled by state authorities.

While many of the Chinese companies traded in the U.S. aren’t state-owned, such as Alibaba and e-commerce rival JD.com Inc., others are fully or partially under Chinese government control. China is less likely to allow audit work papers for state-owned firms to ever be shared with overseas regulators, according to securities lawyers. Shares of many Chinese firms have been hit hard since the passage of the Senate bill on Wednesday, with Alibaba and JD.com falling 8% and Baidu Inc. dropping 5.8%.

China says sharing audit work papers would violate its sovereignty and risk leaking state secrets. This year, it outlawed complying with overseas securities regulators without the permission of its own market supervisor and various components of the Chinese government.

Luckin, which went public on the Nasdaq Stock Market and is being investigated by the SEC, said some employees fabricated $310 million in revenue. It has since fired its chief executive and chief operating officer, and its shares have fallen to a recent $1.39 from $50 in January. The SEC said last month that the agency’s ability to promote and enforce standards in China and other emerging markets is severely limited.

Before Luckin, there was a string of Chinese frauds in the U.S. stock market. The SEC sued Deloitte Touche Tohmatsu CPA Ltd. in 2011, seeking records it needed to conduct a fraud investigation of the audit firm’s former client, China-based Longtop Financial Technologies Ltd. In 2016, the SEC sued Longwei Petroleum Investment Holding Ltd., a fuel company based in China that had been listed on the New York Stock Exchange’s market for smaller companies, over claims that it fabricated aspects of its business. The SEC prevailed in the case in 2019.

Backers of the proposed U.S. crackdown say what had been a low-profile issue in financial markets took on greater political meaning after this year’s economic crash.

“What has helped with this is all things coronavirus,” said Rep. Mike Conaway (R., Texas), who sponsored similar legislation last year. “China’s response has brought a lot of issues to the forefront, one of which is, should they have access to our markets with different rules than everybody else?”

Critics say the SEC and the Public Company Accounting Oversight Board could have moved in the past to cut off Chinese companies from U.S. markets over the audit-inspection stalemate. But barring the Chinese audit firms, for instance, would have negative consequences for U.S. multinationals that use the firms for their China operations.

The Senate legislation, co-written by Sens. John Kennedy (R., La.) and Chris Van Hollen (D., Md.), must pass the House to become law. A version of the bill was introduced in the House by Rep. Brad Sherman (D., Calif.), who chairs a key subcommittee that focuses on investor protection and said the bill may need a technical fix.

“We needed the SEC and the PCAOB to move in this direction, but now it looks like Congress will,” Mr. Sherman said. “I think this passes the House in the next two months, hopefully in improved form.”

The House is likely to approve the bill, said James Lucier, managing director at Capital Alpha Partners LLC, an investor-focused policy research firm.

SEC Chairman Jay Clayton said that the Senate legislation offers a new way to get China to comply with PCAOB requirements. The companies and their auditors would have three more years to comply with inspection requirements—or face delisting from the Nasdaq or NYSE.

“The Senate bill is a legislative attempt to get China to comply with the oversight requirements,” Mr. Clayton said. “The status quo is not acceptable.”

Photo: Chinese companies such as Alibaba could be forced to give up their listings on U.S. stock exchanges. – BRENDAN MCDERMID/REUTERS

China is now close to completing the construction of a large naval base in Djibouti. Forbes magazine reported Monday that the base will soon be ready to receive large warships and possibly aircraft carriers, describing it as a “modern-day fortress built from scratch.”

China began construction on the base in 2016, leaving its walls largely complete by the following year. Since then, the base has been built up into a seemingly impenetrable military fortress with multiple layers of defense.

Among the many layers of security are base walls made out of Hesco Style barriers with razor wire running along the top. As explained by Forbes’s H.I. Sutton:

Hesco barriers are wire frames filled with giant sandbags. They are commonly used by Western forces in Afghanistan and Iraq as the main walls of fortified bases. Here they are relegated to just being an outer wall.

Inside the Hesco wall is the main wall built out of concrete. It has crenelations, meaning the up-and-down style battlements familiar from medieval castles. There are also gun loops, which are holes to fire weapons through. And there are tall towers on the corners.

As well as the physical defensive layers, the base is also reportedly housing marine forces and armored vehicles, including ZBD-09 infantry fighting vehicles, all equipped automatic cannons, anti-tank missiles, and high-caliber guns.

Despite its population of around 850,000, Djibouti is already home to military bases from the United States, Japan, and France, the country’s former colonial rulers, although none of them come close to comparing with size and modernness the Chinese base. Djibouti is located in far eastern Africa, offering easy access to the Arabian Peninsula.

Like many of its African neighbors, Djibouti is also already home to some of the numerous Chinese-led infrastructure projects that employ more than one million Chinese workers across the continent.

Although most analysts believe the base is part of a wider effort by Beijing to achieve economic and dominance around the world, China insists that its primary role will be providing assistance to Chinese warships operating in the region in anti-piracy and humanitarian operations.

“The base will ensure China’s performance of missions, such as escorting, peace-keeping and humanitarian aid in Africa and West Asia,” state media noted in 2017. “The base will also be conducive to overseas tasks including military cooperation, joint exercises, evacuating and protecting overseas Chinese and emergency rescue, as well as jointly maintaining the security of international strategic seaways.”

Chip-making giants and their investors understandably like the idea of the U.S. government pitching in on a very expensive business. They should be careful what they wish for, though, as recent history has shown that growing political involvement in the sector hasn’t been cost-free.

Shares of Intel and Taiwan Semiconductor Manufacturing, TSM 1.15% or TSMC, both got a lift Monday after a report over the weekend from The Wall Street Journal that the Trump administration is in talks with both companies about building more chip-fabrication facilities in the U.S. No specific proposals were outlined, though apparently Intel pitched an idea to the Defense Department of building a commercial foundry in partnership with the Pentagon.

TSMC builds most of its advanced chips in its home country of Taiwan, though the article noted that the company is also considering new facilities in the U.S., partially at the behest of Apple —its largest customer. The company’s Taiwan-listed shares rose 1.2% in Monday’s trading. Intel’s U.S.-listed shares closed up a little less than 1%.

Among the latest developments are an effort to enact export controls over advanced chip-making equipment—a market dominated by U.S. companies such as Applied Materials, KLA and Lam Research. The Commerce Department announced new rules two weeks ago that could add more restrictions to the sale of such gear to the Chinese market, which UBS has projected to account for about 17% of the industry’s total sales this year. The true impact of those new rules still isn’t clear, though Lam Research added a risk factor to its 10-K filing the same week, saying that the new rules could “materially and adversely” affect its business.

Intel is trying to see the bright side of this rising and geopolitically driven tension for the moment, enthusiastically courting government support for building facilities. This is understandable given the growing cost Intel and TSMC are bearing in their race to stay on top of the chip-making pile. Both companies have watched their annual capital expenditures grow an average of 12% annually over the past five years, and both are still expected to spend about $15 billion or more this year even despite the broad global economic downturn now under way.

Some help from the government could help Intel and TSMC manage those bills. But it would likely come with many constraints—including to whom they could sell. Investors should keep in mind that public dollars generally come with strings attached.

Photo: Intel is courting government support for building chip-fabrication facilities. – STEVE MARCUS/REUTERS

By Joy Votrobek, Sr. Research Analyst, American Security Council FoundationEdited by Laurence Sanford, Director, American Security Council Foundation

May 12, 2020

Bahama’s recognition of “one-China” and ending their diplomatic relations with Taiwan.

Economic coercion through loans for gambling casinos and infrastructure

Chinese operate a deepwater port close to U.S. Navy submarine testing waters and U.S. Space activities at Cape Canaveral.

China’s worldwide efforts to isolate independent Taiwan through political and economic coercion succeeded in the Bahamas in 1997. The Bahamas terminated diplomatic ties with Taiwan and recognized Beijing’s “one-China” policy. That same year Hong Kong’s, Hutchinson Whampoa, with links to Beijing, poured $2.6 billion into the Freeport Container Port.[1] A large port that Hutchinson Whampoa currently manages, Freeport is located on Grand Bahama Island. Furthermore, in 2009, China’s Shandong Hi Company started construction of the Thomas Robinson stadium. Bahamian officials told the New York Times that the $30 million “gifted” stadium was in part due to ending their diplomatic ties with Taiwan.[2] North Abaco port (pictured above) is located on the Abaco Island chain, approximately 66 nautical miles to the west of Freeport. It was also financed and built by the Chinese, but the Bahamian government put up part of the financing and now manages the North Abaco Port.

Ever since the Bahamas recognition of one-China, Chinese bankers and construction companies have been loaning money to the Bahamas for excessive infrastructure programs, including gambling casinos and resorts. Only the future will tell if the Bahamas will be prosperous or find themselves with underutilized infrastructure and gambling resorts that cannot generate the income to cover the loan costs. The Bahamas aren’t alone, it has become China’s approach to prey on nation-states in need of infrastructure but lacking the financial ability to build within the budget or secure loans through the Western capital markets. China has a pattern of going to the nation-states aid, bearing “gifts” and loans.

Arguments arise over how much of a national security threat Chinese operated Ports and resorts in the Bahamas are. Hutchinson Port Holdings control of 15% of the world’s shipping, managing 52 ports in 27 countries, should be of concern because of their ties to Beijing and the PLA.[3] Proximity to the U.S., and Beijing’s desire to gain commercial fishing rights off Andros Island is something that should not go unwatched. Andros Island is where the U.S. Military conducts nuclear submarine exercises. Andros is just 110 nautical miles from Freeport. It doesn’t seem coincidental that China wants the rights to commercial fishing off of Andros, primarily when the Chinese militia have been known to use commercial fishing boats as part of their naval military.[4] Also, the U.S. nuclear submarine port and space center at Cape Canaveral of located approximately 154 nautical miles away from Freeport, located on Grand Bahama Island, North Easternmost island of the Bahama island chain and closest to Cape Canaveral. Hutchinson has already modernized Freeport with the current news out of China; it may only be a matter of time before Freeport becomes a 5G smart port.[5]

The Chinese are patient with a long term view, waiting for the right government to come into power to do their bidding. China’s economic, political, and militarily strategic positioning in the Bahamas requires that the United States stay alert to China’s threefold plan and take action where needed.

The Chinese Communist Party (CCP), in the wake of the economic collapse triggered by the coronavirus pandemic, is ignoring debt relief calls by African countries targeted by Beijing’s predatory lending practices, a leader of a bipartisan American congressional commission suggested on Friday.

U.S. taxpayers may have to bail out the African countries unable to meet their financial obligations from Chinese “debt traps,” Carolyn Bartholomew, the chairwoman of the U.S.-China Economic and Security Review Commission established by Congress, declared in opening remarks prepared for a hearing Friday.

The coronavirus illness (COVID-19) originated in China where the CCP mismanaged its response and hid the severity of the lethal and highly contagious disease during its early stages, a move that slowed the globe’s response, U.S. officials believe.

American officials have also accused China of spreading disinformation that has contributed to the spread of the viral pandemic.

The United States has long accused China of using its Belt and Road Initiative (BRI) as a vehicle for predatory economic diplomacy to undermine the sovereignty of financially vulnerable African countries by burying them in unsustainable debts often collateralized with strategic assets and natural resources.

On Friday, the U.S.-China commission held a hearing on Beijing’s strategic aims in Africa, particularly the communist country’s growing influence on the continent and its implication for the United States.

In her written testimony, Bartholomew declared:

China’s funding [for Africa] comes at a price, contributing to an unsustainable buildup of debt in many African countries. These lending practices have led to accusations of a “new colonialism,” and in the wake of the economic slowdowns caused by the COVID-19 outbreak, African countries have increasingly called for debt relief. China has so far been silent to these requests, raising the question of whether the United States and other responsible donors will be left footing the bill. While China has publicized its humanitarian public health efforts in Africa during the COVID-19 pandemic, many Africans are skeptical, and have expressed concern that the equipment donated by China may be of poor quality.

American taxpayers are the dominant stakeholders of the International Monetary Fund (IMF) and the top contributors to the World Bank. Both organizations offer loans to developing countries. The United States is also the top source of funding for the United Nations. It also provides other forms of assistance through the U.S. Agency for International Development (USAID) and the Department of State, among other federal entities.

Nevertheless, China’s diplomatic attention and resources devoted to Africa exceed that of the United States, some witnesses noted during the hearing.

China is Africa’s largest trading partner, with the trade mainly concentrated on the continent’s oil- and mineral-rich countries.

In Africa, China is robbing “an emerging generation of young people of the birthright of their natural resources,” Christopher Maloney, the acting administrator for Africa at USAID, wrote in his testimony.

Amid the coronavirus pandemic, the Chinese communist party has also reportedly engaged in racist practices against foreigners of African descent accused of spreading the virus, allegedly including Americans.

The ongoing COVID-19 pandemic presents new challenges for China-Africa relations and may alter China’s relationships and image on the continent. In recent weeks, African leaders have spoken out against China in unusually frank terms for its reported mistreatment of Africans living in China, including actions forcing evictions of some Africans living in Chinese hotels and preventing Africans from entering restaurants and shops—actions ostensibly taken to stop the spread of the virus.

African leaders have also called for Chinese debt relief in light of the global economic slowdown caused by COVID-19. China has reacted by stressing themes of Sino-African solidarity, and has used the pandemic as an opportunity to enhance its image through relief efforts and public diplomacy. The ultimate success of this campaign remains to be seen, but it is clear that China cannot afford to allow COVID-19 to damage the reputation it has spent so long building in Africa and risk jeopardizing its economic investments on the continent as a result.

“Coronavirus may slow down or even disrupt” China’s efforts to become a global power through growing military engagements in Africa and the BRI, former Amb. David Shinn, who is now an adjunct professor at George Washington University, noted in his written testimony.

In 2000, Congress reportedly established the U.S.-China body “to monitor, investigate, and submit to Congress an annual report on the national security implications of the bilateral trade and economic relationship between the United States and the People’s Republic of China” and provide recommendations for legislative action where appropriate.

Communist China is using its financial clout in Africa to promote its model of governance that promotes corruption, a lack of human rights, increased authoritarianism, and undercuts America’s pro-democracy efforts, some of the witnesses said, echoing other assessments.

China could find itself having to write off massive loans as countries that owe Beijing money under its massive infrastructure project struggle with mounting debts in the coronavirus fallout, analysts say.

China’s mammoth infrastructure investment plan — also known as the Belt and Road Initiative(BRI) — is highly controversial and widely criticized for saddling many countries with debt.

It is an ambitious project that aims to build a complex network of rail, road and sea routes stretching from China to Central Asia, Africa and Europe. It is also aimed at boosting trade. Chinese financial institutions have provided hundreds of billions in funding to countries involved in the BRI projects.

“Many countries under the BRI initiative have borrowed heavily from China to invest in new projects, but the pandemic is disrupting economies and will complicate repayment plans,” Kaho Yu, senior Asia analyst at Verisk Maplecroft, told CNBC.

The coronavirus pandemic has spread to more than 180 territories and countries in the world, and has infected more than 4.1 million people so far, according to data from Johns Hopkins University. At least 282,694 deaths related to Covid-19 have been reported since it first emerged late last year in China.

Several major BRI projects — such as those in Indonesia, Malaysia, Cambodia, Sri Lanka and Pakistan — have been stalled by lockdowns, according to Simon Leung, a banking and finance partner at law firm Baker McKenzie.

The outbreak has also led to disruptions in BRI projects which often depend heavily on labor and supplies — but both were prevented from reaching the sites as a result of the lockdowns, Leung pointed out.

“The drop in export revenues, coupled with increasing domestic spending as a result of the outbreak, have led to significant depreciation of local currency and in turn adversely affected the ability of borrowers to meet forex-denominated debts owing to Chinese banks,” said Leung, referring to increased spending in terms of stimulus packages. Less demand for a country’s goods typically also means less demand for its currency, causing it to weaken.

All that has affected the ability of debtor countries to repay their dollar-denominated loans from China.

More than 130 countries are under the BRI initiative, according to Beijing-based research firm Green Belt and Road Initiative Center. Many of those countries are in Europe, Africa, and Central Asia.

According to Yu, low-income countries under Belt and Road are already asking China for debt relief. That could come in the form of interest waivers, extension of payment periods or to suspend payments altogether in the medium term.

Pakistan and Sri Lanka could be among the worst-off, and may not be able to service their overall debt obligations this year as a result of the pandemic, analysts said.

Barter trade

Countries have also signed so-called “barter deals” with China, and they are “in an even more difficult position,” Yu said.

“Since the pandemic hit the oil prices, they will have to produce more oil to repay the loans. However, the pandemic has also disrupted all kinds of industrial activities, making it impossible for these countries to meet the required production level,” Yu said. “As a result, Chinese companies will likely be handed control over joint ventures or be repaid by assets.”

China has had a track record of taking over assets when countries cannot repay their loans. One high-profile example is Sri Lanka, which had to hand over a strategic port to Beijing in 2017, after it couldn’t pay off its debt to Chinese companies.

‘Pressure’ to write off loans

China will be “under pressure” to extend those loans or even write them off, according to research firm Economist Intelligence Unit. It has already “indicated some willingness” to offer debt-relief programs to certain low-income countries, said EIU.

“There is, however, a growing likelihood that Chinese lenders will be forced into broader debt forgiveness, owing to force-majeure clauses or other arrangements,” the EIU said. A force majeure event occurs when unforeseeable circumstances — such as natural catastrophes or in this case, a pandemic — prevent one party from fulfilling its contractual duties, absolving them from penalties.

“Widespread debt write-offs could generate a negative feedback cycle that would discourage future Chinese lending activity over the remainder of 2020 (and into 2021),” the research firm said.

Much of the lending is done through two policy banks — the China Development Bank and Export-Import Bank of China, both of which are “closely linked” to the Chinese government, said Baker McKenzie’s Leung.

“Those banks enjoy government backing and support and therefore the debt renegotiations may involve political dialogue,” he said.

More importantly, Beijing could be motivated to write off debts due to the BRI’s significance to China. “We suspect that China will eventually come around to rescheduling and forgiving some of the debts to BRI countries, especially for projects that are strategically important,” said Homin Lee, Asia macro strategist at Swiss private bank, Lombard Odier.

“Debt problems will be highly idiosyncratic, especially since China has strategic stakes in many of the transnational projects and also economic interest in ensuring the long-term success of the program,” he told CNBC in an email.

Back home, Chinese banks are already preparing for a growing pile of bad loans, as consumers and companies alike suffer the brunt of the pandemic. Earlier this year, China’s central bank said state lenders will have to tolerate higher levels of bad loans to support firms affected by the coronavirus.

Photo: Workers take down a Belt and Road Forum panel outside the venue of the forum in Beijing on April 27, 2019.Greg Baker | AFP | Getty Images

When the bill comes due for Congress to pay off nearly $3 trillion in spending bills passed to spur economic activity during the COVID-19 shutdown, Secretary of Defense Mark Esper worries future Pentagon budgets will take a hit.

For the Department of Defense to continue increasing its readiness and modernize its forces, the Pentagon needs its topline budget to grow between 3 percent and 5 percent annually, Esper said Monday morning during a webinar hosted by the Brookings Institution.

“I am concerned of course that the massive infusion of dollars into the economy by the Congress and the executive branch, nearly $3 trillion, may throw us off that course, if you will, because we all recognize the United States has an enormous debt and we have to deal with that too,” Esper said. “So, there is a concern there that may lead to smaller defense budgets in the future at the critical time we need to continue making this adjustment, where we look at China, then Russia, as our long-term strategic competitors.”

President Donald Trump’s proposed Fiscal Year 2021 Department of Defense budget requested $705.4 billion, which is $7.2 billion less than the DoD spending in FY 2020. Congress is weighing the president’s spending proposal, but it’s too soon to tell the amount of spending Congress will authorize and appropriate.

“Many have raised this concern, that the huge current deficits and a future focus on domestic issues, both the economy and health, will lead to lower defense budgets,” Mark Cancian, a senior advisor for the international security program at the Center for Strategic and International Studies, told USNI News after the webinar. “However, I am something of a contrarian here. Congress has increased the current budget, FY 2020, to fight the pandemic. Congress will likely fund the FY 2021 budget at something close to the request, since I don’t see any near-term interest in fiscal restraint.”

Regardless of the outcome in this November’s presidential election, Cancian said a new administration will propose the FY 2022 budget. If Trump wins a second term, Cancian expects the budget will be flat in real terms, as the projection currently shows.

If the presumptive Democratic nominee Joe Biden wins in November, Cancian doesn’t expect a radical shift spending. A Biden FY 2022 budget proposal would likely cut defense spending by about 5 percent, or $35 billion to be phased in over five years, Cancian said. A Biden administration will likely adopt the same national security strategy as the Obama administration did in its later years, he said, which would require a sizable defense effort.

The Pentagon is investing heavily in more efficient systems, Esper said. This includes developing artificial intelligence, hypersonic weapons and defense systems, space capabilities, cyber and directed energy systems. At the same time, the Pentagon must evaluate which systems to keep.

“That means shedding the legacy force, and moving to a more modern force,” Esper said. “And that more modern force looks like completely revitalized strategic forces — and, as you know, we’re rebuilding all three legs of the nuclear triad, whether it’s the ground-based strategic deterrent, the new SSBNs or long-range strategic bombers.”

The possibility of budget cuts, though, is real, Todd Harrison, the director of defense budget analysis at CSIS, told USNI News after the webinar.

“I think DoD should start preparing for the possibility of a budget downturn,” Harrison said. “It should not repeat the mistakes it made in 2012-2013 in the leadup to the [Budget Control Act] going into effect, where the department refused to plan for the cuts in advance. The argument then was, ‘if we plan for cuts, we make the cuts more likely to happen.’ But the cuts happened anyway because they were driven by concerns over the deficit, not defense. I think the same may be true this time around.”

Esper said the Pentagon is already considering ways it can save money in the event of future budget cuts. Some money-savers may change how operations are conducted but wouldn’t come at the expense of readiness or lethality, he said

An example is developing a concept of immediate reaction forces and contingent reaction forces to respond to global situations, Esper said. This shift does not require a lot of new spending and, in some cases, might save money.

“I want to move much more in the direction of operational deployment as compared to permanently deployed foreign forces,” Esper said. “There are a number of things we can do to keep our adversaries off balance, to improve our own readiness at the same time, that don’t necessarily involve massive infusions of dollars.”

Photo: Secretary of Defense Mark Esper speaks to the media during in the Pentagon Briefing Room on April 14, 2020. DoD Photo

Sales at HiSilicon, Huawei’s in-house chip design company, jumped 54% last quarter from a year earlier, making it the first Chinese company to enter the top ten in global semiconductor sales, according to market research firm IC Insights. More than 90% of HiSilicon’s sales go to Huawei, according to the report.

The Trump administration’s restrictions on U.S. companies selling to Huawei has forced the Chinese company to find alternatives to its American suppliers. While smartphone shipments in China collapsed 20% in the first quarter due to the coronavirus pandemic, Huawei’s market share has gone up to 43% from 36% a year earlier, according to IDC. As a result, HiSilicon has also overtaken Qualcomm in China as the top vendor for system-on-chip, an integrated circuit containing the central processor in smartphones. HiSilicon’s Kirin chipsets go into Huawei’s smartphones, including its flagship model P40 Pro. China’s buildout of 5G networks will also boost HiSilicon, whose chips will power Huawei’s base stations.

Huawei may shift some of its orders to Chinese foundry Semiconductor Manufacturing International Corp., but technology there still lags behind industry leaders like TSMC and Samsung. SMIC’s Hong Kong-listed shares nonetheless have gained 43% this year as investors expect more orders coming from other Chinese companies. Its stock got a boost this week as it unveiled a plan to raise potentially billions of dollars on Shanghai’s Science and Technology Innovation Board, which could give the company a much higher valuation.

But ultimately SMIC’s capabilities could be hampered if the Trump administration decides to dial up the pressure in its campaign against China. The Commerce Department said last week that it would expand the list of U.S.-made products and technology shipped to China that need to be reviewed by national security experts before shipping. SMIC depends on foreign semiconductor manufacturing equipment, including some from the U.S.

In the race for 5G supremacy and technological self-sufficiency, Huawei has steadily gained ground over the past two years despite American pressure. But the U.S. still holds a powerful trump card at the top of the value chain, should it choose to use it.